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February 10, 2005

The More You Sell, The Less You Make

Something is not quite right with that headline. As long as a business has sound fundamentals, how can it be the more a business sells ... the less it makes?

Two words : WAL*MART.

According to a recent BusinessWeek article, only 9 of the 38 companies generating 10% or more of their total sales volume at Wal*Mart are recording above-average profitability and shareholder returns.

Proctor & Gamble, which generates 18% of its sales volume through the Wal*Mart channel, is one of the nine. The article mentions P&G has found prosperity at Wal*Mart by not selling commodity goods like paper towels. Instead P&G focuses on selling goods such as Olay skin products which command higher margins and are not easily commodified by private label producers.

This interesting info nugget dovetails with our posts from last week on how private label brands, diminishing pricing power of packaged good producers, and the Wal*Mart effect may have significantly influenced the Proctor & Gamble/Gillette merger.

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Further Learning:
  • BusinessWeek article | Branding: Five New Lessons (sub. req'd) | Feb. 14, 2005
  • Business Blog Book Tour at Brand Autopsy | Category Killers | January 26, 2005
  • Brand Autopsy post | First serving of Category Killers leftovers | January 31, 2005
  • Brand Autopsy post | Second serving of Category Killers leftovers | January 31, 2005
  • Brand Autopsy post | Third serving of Category Killers leftovers | January 31, 2005
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